41061 Unite AR22 HI-RES WEB-READY - Flipbook - Page 88
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THE UNITE GROUP PLC | Annual Report and Financial Statements 2022
PRINCIPAL RISKS AND UNCERTAINTIES continued
PRINCIPAL RISK
FINANCIAL
10
Risk description:
• Risk that borrowing costs rise rapidly, increasing the cost of debt and we are not able to achieve the
lowest funding cost within risk tolerances.
• Risk that we are unable to renew or secure funding to meet committed or intended business plans,
potentially leading to our having to slow development, defer capital expenditure or cut dividends.
• Risk that we fail to comply with contracted loan agreement covenants.
Objective
Manage our balance
sheet liquidity within
tolerable levels and
maintain compliance
with our debt
covenants
Events that may
trigger the risk
• High rates of inflation caused
by oil prices, labour shortages,
supply chain disruption and/or
other factors
• Reduced access to capital
markets due to external
factors e.g. global financial
crisis
• Significant reduction in
revenue or other adverse
business event affecting the
market’s perception of Unite
risk and future performance
• Significant reduction in
property valuations or
increase in debt
Potential impact
• Increased financing costs
leading to reduced profitability
and property values (through
resulting expansion of
valuation yields and lower
valuations)
• Possible forced sales at below
valuation
• Slowdown in development
activity
• Breach of debt covenant
could lead to an event of
default followed by repayment
demand
How we monitor
and negotiate
• Movements in interest rates and
the impact of different outcomes
are considered at the Capital
Strategy Committee
• Hedge strategy is approved by the
Board each year
• Minimum hedge ratio of 75% is
defined in the Group’s capital
operating guidelines. Most debt is
fixed rate or hedged with swaps
or caps
• Revolving Credit Facility to provide
liquidity headroom
• Property Leadership Team
routinely reviews capital
commitment
• Maintain good relationships with
lenders
• We manage the balance sheet
ratios defined in capital operating
guidelines
• Annual funding strategy approved
by the Board
• Monitoring of debt covenants
across a range of income scenarios
and risks
• Increasing attention on interest
cover covenants, with six monthly
monitoring
